With the national house price inflation forecast at just above 2% at the end of October, the industry as a whole may be wondering what to expect as we wind down 2020.
READ | Emerging property trends for 2021 | Low interest rates will continue to drive the market
From forecasts of property market oversupply with an expected 'wave of distressed properties', the property market will continue to play an important role in boosting the economy - with few realising the extent to which real estate activity contributes to the South African GDP.
"Recent estimates place this figure as high as R191-billion, with a R46-billion direct contribution to national revenue. In light of the havoc that Covid-19 has wreaked on the South African economy, a contribution of this scale is nothing to be sneezed at, " says Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group.
He suggests there are still a few hurdles to be faced for real estate to reach its full potential as a force for good on the country’s path to economic recovery.
SEE: 73% drop | A look at the impact of Covid-19 on deeds registrations in South Africa
“After a very difficult start to the year, we’ve been incredibly pleased and grateful for the flood of new buyers hitting the market post lockdown,” says Van der Merwe. “Sales have hit record numbers in response to the South African Reserve Bank’s interest rate cuts, and this surge of activity looks set to continue well into the new year.”
Price sensitivity
The market conditions have however, never been better for buyers - but sellers are at risk of missing out on their key pool of potential buyers if they get their pricing wrong up-front.
“The first thing potential buyers look at in their home search is price – and no matter how perfect the house, if the price doesn’t line up with what the home offers and the buyer’s budget, you’ve potentially lost them forever,” says Lloyd Hobson, national sales manager of tech-enabled real estate agency, Leadhome.
SEE: The Great Dispersion | Second passport demand surges by 50%
We’re going to see a lot of keenly-priced properties coming into play in the coming months, which makes getting your price right even more critical. Last year, 14% of our sales were due to emigration – and if we add the expected wave of distressed properties coming onto the market, this will drive prices down even further, as the buyer pool will not be able to sustain those levels,” adds Hobson.
While this increased spending – and lending – will inject much-needed liquidity into the economy, Van der Merwe says it’s far from enough to turn the economic tide on its own. Thankfully, business and consumer confidence have both shown a significant uptick in recent weeks, suggesting other economic activity may be hitting its stride again, soon.
In fact, GDP forecasts for 2021 have already been upgraded to 3.5% by the Centre for Risk Analysis (CRA) and 3.3% by the National Treasury, adds van der Merwe.
'Business and consumer confidence show significant uptick'
“The recovery of business and consumer confidence is important for the property sector, as it directly affects things like job security and income growth, which contribute to affordability,” he says.
“Low interest rates and inexpensive property prices can only go so far towards motivating buyers. They also need the long-term financial security and disposable income available to be able to save for deposits and fees and qualify for finance.”
READ | SARB holds 50-year-low interest rate | Average bond values South Africans can afford right now
The current surge in property purchases by buyers under 50 suggests confidence levels in the country’s long-term economic outlook are already high amongst certain age groups. However, Van der Merwe says this market activity and its contribution to the GDP will also boost confidence levels amongst other demographics, driving more property investment and more GDP growth in a symbiotic upward cycle.
“We also expect to see a resurgence in foreign investment adding its strength to this cycle, as our weak exchange rate has made properties 20% to 30% cheaper for foreign buyers than the same time last year,” he adds. “It’s also unlikely that those prices are going to start their own recovery quite yet, which means high buyer activity should continue for some time to come.”
'Current oversupply a stumbling block to positive price growth'
While this is good news for investors in the short term, property price growth is essential for the long-term viability of the market. According to Van der Merwe, the main stumbling block at present is the oversupply of properties on the market.
“This oversupply won’t last forever,” he says, “particularly with the levels of buyer activity we’re seeing at present, but it’s high enough that it will take some time to return to normal levels. That said, there are already certain properties in certain areas that are experiencing positive price growth as demand in their specific niche markets starts to overtake supply.”
READ: Freehold vs Sectional Title Homes | Preferred property type among first-time buyers shifts
And with supply and demand in the balance, the types of properties being snapped by first-time-buyers are also shifting.
“What is becoming evident in this new ‘post-hard lockdown’ environment is that freehold house price inflation has stabilised and is beginning to strengthen marginally, while price growth for sectional title homes continues to slow. For the year to date (Jan - Oct 2020), freehold house price inflation has averaged 2.6%, while sectional title inflation has averaged just 1.8%," says Dr Andrew Golding, chief executive of the Pam Golding Property group.
“This suggests that demand, in the post-lockdown environment, is stronger for freehold homes than sectional title homes – in a reversal of a long-term shift towards sectional title homes. It seems likely, however, that this demand is probably being felt less in the traditional, relatively more expensive suburbs and more in relatively affordable areas on the periphery of metro areas or in previous holiday and retirement towns.”
'Understanding these micro-trends'
According to Van der Merwe, understanding these micro-trends is vital for sellers hoping to make the most of what can be a challenging market.
“You can’t get swept up in the major trends and forget to look at what’s happening right on your doorstep,” he says. “It’s only by understanding all the elements at play that you can successfully position and market a property for a favourable sale.”
The more favourable sales – for both buyers and sellers – the greater the impact property will have on South Africa’s economic recovery.
“It’s actually a very exciting time to be a real estate agent,” says Van der Merwe.
“With our support, more people will be able to benefit from buying and selling property, and together we can increase the property sector’s already significant influence on the economy. It’s a wonderful opportunity to help our country by doing what we do best, and we’re looking forward to giving it our all in the coming year.”
Print
